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Ohio Reps. Ron Young (R-Leroy Twp.) and Andy Thompson (R-Marietta), and Missouri Sen. John Lamping (R-St. Louis County), have introduced legislation—we call it the Health Care Freedom Act 2.0—that would suspend the licenses of insurance carriers who accept federal subsidies through one of the Patient Protection and Affordable Care Act’s (PPACA) health insurance Exchanges. At first glance, that might seem to conflict with or otherwise be preempted by the PPACA. Neither is the case. Instead, the HCFA 2.0 would require the IRS to implement the PPACA as Congress intended.

Here’s why. Under the PPACA, if an employer doesn’t purchase a government-prescribed level of health benefits, some of its workers may become eligible to purchase subsidized coverage through a health insurance “exchange.” When the IRS issues the subsidy to an insurance company on behalf of one of those workers, that payment triggers penalties against the employer. Firms with 100 employees could face penalties as high as $140,000.

Congress authorized those subsides, and therefore those penalties, only in states that establish a health insurance Exchange. If a state defers that task to the federal government, as 33 states including Missouri and Ohio have done, the PPACA clearly provides that there can be no subsidies and therefore no penalties against employers. The IRS has nevertheless announced it will implement those subsidies and penalties in the 33 states that have refused to establish Exchanges. Applying those measures in non-establishing states violates the clear language of the PPACA and congressional intent. See Jonathan H. Adler and Michael F. Cannon, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” Health Matrix: Journal of Law-Medicine 23 (2013): 119-195.

Whether legal or illegal, those penalties also violate the freedoms protected by the Health Care Freedom Amendment to Ohio’s Constitution, and Missouri’s original Health Care Freedom Act, which voters in each state ratified by overwhelmingmajorities. The Ohio (HB 91) and Missouri (SB 473) bills would protect employers and workers from those penalties, and thereby uphold the freedoms enshrined in Missouri statute and Ohio’s Constitution, by suspending the licenses of insurance carriers that accept those subsidies.

The question arises whether the PPACA would preempt such a law. It does not. The HCFA 2.0 neither conflicts with federal law, nor attempts to nullify federal law, nor is preempted by federal law.

The HCFA 2.0 concerns a field of law—insurance licensure—that has traditionally been a province of the states under their police powers. In preemption cases, courts “start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009). Courts then must determine whether the state law in question is nevertheless trumped by express or implied federal preemption.

Nearly two years ago, I wrote about an intriguing Commerce Clause case involving the Montana Firearms Freedom Act. To wit, Montana enacted a regulatory regime to cover guns manufactured and kept wholly within state lines that was less restrictive than federal law. The Montana Shooting Sports Association filed a claim for declaratory judgment to ensure that Montanans could enjoy the benefits of this state legislation without threat of federal prosecution. The federal district court ruled against the MSSA.

On appeal to the Ninth Circuit, Cato joined the Goldwater Institute on an amicus brief, arguing that federal law doesn’t preempt Montana’s ability to exercise its sovereign police powers to facilitate the exercise of individual rights protected by the Second and Ninth Amendments. More specifically, for federal law to trump the MFFA, the government must claim that the Commerce and Necessary and Proper Clauses give it the power to regulate wholly intrastate manufacture, sale, and possession of guns, which is a state-specific market distinct from any related national one.

The lawsuit’s importance is not limited to Montana; a majority of states have either passed or introduced such legislation. The goal here is to reinforce state regulatory authority over commerce that is by definition intrastate, to take back some of the ground occupied by modern Commerce Clause jurisprudence.

Well, after much delay – in part due to the Ninth Circuit’s waiting for Supreme Court instruction on the Commerce Clause in the Obamacare litigation – MSSA v. Holder finally saw oral argument two weeks ago. The Goldwater Institute’s Nick Dranias, who was the principal author of our joint brief, was able to get 10 minutes of argument time and sent me this report afterwards, which I reprint with his permission:

Congress empowered states to block major provisions of ObamaCare, including its subsidies and employer mandate. All states need do to is refuse to create a health insurance “exchange.” (And a whopping 34 states, accounting for two-thirds of the U.S. population, have done just that.)

Supporters of the law are doing their level best to deny what the law says. It has now been one full month since I challenged anyone and everyone to debate with me the powers Congress gave states to block these and other parts of the law. My debate-challenge video (embedded below) has nearly 3,000 views on YouTube. And how many brave ObamaCare supporters have accepted my challenge? Zero.

The latest to deny what the law says is Idaho Attorney General Lawrence Wasden, who has issued an opinion that Congress did not give Idaho these powers. So I hereby issue my challenge directly to Wasden, or any member of his staff, or his entire staff: I say you are misreading the law, and doing Idaho legislators, employers, and taxpayers a great disservice. So let’s have a debate over whether Congress allows Idaho to block ObamaCare’s employer mandate, and whether you are accurately portraying the law to Idaho legislators.

Update: Washington & Lee University law professor Timothy Jost protests that he debated this issue with both Jonathan Adler and me back in October 2012. True enough, Jost is the only person who has agreed to debate this issue with us live. Here’s the video of that debate. Decide for yourself who bested whom. I meant my “zero” count to be prospective, and would be happy to debate Jost again.

Idaho Gov. Butch Otter (R), who added Idaho to the multi-state challenge that sought to overturn ObamaCare as unconstitutional, now supports helping the Obama administration implement the law by establishing and funding a health insurance “exchange.” Exchanges are new government bureaucracies that enforce ObamaCare’s many regulations, channel billions in deficit-financed government subsidies to private health insurance companies, and help the IRS penalize individuals and employers who fail to purchase government-approved insurance. So far, some 32 states have refused to establish an Exchange themselves. If Idaho’s legislature authorizes an Exchange, they will make Idaho the only state where a Republican legislature and governor acted together to implement this essential piece of ObamaCare.

One could argue this is a debate Idaho shouldn’t even be having. Establishing an ObamaCare compliant Exchange would violate Idaho state law.

In a letter sent to Idaho legislators today, Goldwater Institute attorney Christina Sandefur explains, “establishing a PPACA state health insurance exchange in Idaho would conflict with the state’s Health Care Freedom Act.” Idaho’s Health Care Freedom Act protects the “right of all persons residing in the state of Idaho in choosing the mode of securing heatlh care services free from the imposition of penalties” including “any civil or criminal fine, tax, salary or wage withholding, surcharge, fee or any other imposed consequence.” Sandefur explains (as I have explained elsewhere), “State exchanges that conform to PPACA are inconsistent with this safeguard because they are the key vehicles for implementing the individual mandate tax,” as well as the penalties ObamaCare levies on employers under the employer mandate. Idaho’s Health Care Freedom Act forbids state officials or state-created non-profits from doing anything that helps to enforce such penalties: “No public official, employee, or agent of the state of Idaho or any of its political subdivisions, shall act to impose, collect, enforce, or effectuate any penalty in the state of Idaho that violates the public policy set forth in [this Act].” As a result, Sandefur writes, “Idaho public officials who operate exchanges would be violating state law,” and “the Attorney General is charged with taking legal action against those who do so.”

Otter himself signed the Health Care Freedom Act into law in 2010, and was the first governor in the nation to do so. The purpose of that Act was to prevent state officials from doing what Otter is now trying to do. “What the Idaho Health Freedom Act says,” Otter boasted at the time, “is that the citizens of our state won’t be subject to another federal mandate or turn over another part of their life to government control.” Yet he is now trying to subject Idaho residents to those mandates, and violating his own law to help the federal government implement ObamaCare. The best spin I can put on this is that Otter is getting some very, very bad advice about the Health Care Freedom Act and ObamaCare’s Exchanges.

The situation in Idaho is a replay of Arizona, which enshrined a similar Health Care Freedom Act in its Constitution. As Arizona officials were wrestling with whether to establish an Exchange, Sandefur and her Goldwater Institute colleagues threatened legal action if Arizona did so. That threat was likely a major factor in Gov. Jan Brewer’s (R) decision to oppose an Exchange.

In an unconscious parody of everything that’s wrong with the “fact-checker” movement in journalism, PolitiFact Georgia (a project of the Atlanta Journal-Constitution) has rated false my claim that operating an ObamaCare Exchange would violate Georgia law. (For some of the “fact-checker” genre’s greatest worst hits, see Ben Domenech’s top 10 list.)

Lest anyone think I meant it would be illegal for the federal government to operate Exchanges in those states, the context and the text (“forbidding state employees”) of that opinion piece make it clear I was discussing whether states should establish Exchanges. Unfortunately, the context was lost on PolitiFact readers, because PolitiFact provided neither a citation nor a link to the opinion piece it was fact-checking.

In Georgia’s case, the relevant statute is that state’s version of the “Health Care Freedom Act” (GA. CODE ANN. § 31-1-11), enacted in 2010. It reads:

To preserve the freedom of citizens of this state to provide for their health care: No law or rule or regulation shall compel, directly or indirectly, any person, employer, or health care provider to participate in any health care system.

The statute defines “compel” as including “ ‘penalties or fines.”

PolitiFact notes that I cited that provision to “an Atlanta Journal-Constitution health reporter [Carrie Teegardin] via email.” Thus PolitiFact presumably had access to the rest of my November 9 email to Teegardin, in which I explained why that provision precludes Georgia from establishing an ObamaCare Exchange:

Determining eligibility for and distributing ObamaCare’s “premium assistance tax credits” is a key function of an Exchange. Those tax credits trigger penalties against employers (under the employer mandate) and residents (under the individual mandate).

Indeed, there are many ways Exchanges assist the federal government in the enforcement of those mandates. State-run Exchanges must report to the IRS on which residents have dropped their coverage and when (Section 1311(d)(4)(I)). State-run Exchanges must notify employers when one of their employees receives a tax credit (Section 1411(e)(4)(B)(iii)). That very notification triggers penalties against the employer (Section 1513/I.R.C. Section 4980H(a)). State-run Exchanges must collect all the information the federal government needs to determine eligibility for tax credits and deliver it to the federal government (Section 1401/I.R.C. Section 36B(f)(3)) – a crucial component of enforcing both the individual and employer mandates. The Secretary can require state-run Exchanges to verify that information for the federal government (Section 1411(d)), and state-run Exchanges must resolve any inconsistencies between the information provided by applicants and official records (Section 1411(e)). If a state-run Exchange can’t resolve an inconsistency between the application and the official records within a certain time period, it has to notify residents that they will be penalized under the individual mandate (Section 1411(e)(4)(B)(iv)). State-run Exchanges must maintain an appeals process for individuals and employers who believe they were wrongly assessed penalties (Section 1411(f)).

My email to Teegardin continued:

Ergo, if Georgia establishes an Exchange, then a Georgia law and state employees would be indirectly compelling employers and residents to participate in a health care system.

In other words, the activities required of an ObamaCare Exchange are exactly the sorts of things that the Health Care Freedom Acts in Georgia and 13 other states exist to prohibit those states’ employees from doing. In a November 15 opinion piece Atlanta Journal-Constitution, no less, I reiterated that same point: legislatures and voters in those 14 states have enacted state laws that make it illegal (and in some cases unconstitutional) for state employees to operate an ObamaCare Exchange.

Rather than evaluate that claim, PolitiFact asked a handful of Georgia scholars about something completely different: whether Georgia’s Health Care Freedom Act prevents the federal government from creating an Exchange for Georgia, or otherwise trumps federal law. It’s difficult to see how anyone who had read my two opinion pieces, much less my email to Teegardin, could think I was saying anything of the sort. Of course such a claim would be false; that’s why I never made it. (ObamaCare does itself give each state the power to stop the federal government from running an Exchange within its borders. But that’s a topic for another day.)

Then again, I could have set them straight. PolitiFact contacted me for help with this “fact-check.” I politely refused, citing my ongoing boycott of their organization. One might say my refusal to assist with this “fact-check” means I have no right to complain.

Another way of looking at it is that this episode validates my boycott. Consider how they responded to my refusal to help: Cannon won’t speak to us because he says we’re not reputable. Should we try to find someone else who might argue his side? Nah. PolitiFact could have proven me wrong by conducting a thorough analysis. Off the top of my head, I can think of seven other experts they might have consulted. A simple online search would have produced two attorneys who have threatened to sue the State of Arizona under the Health Care Freedom Amendment to its Constitution if state officials establish an Exchange. Instead, PolitiFact considered a discussion of my email auto-signature – “Tyrannis delenda est” – more worthy of inclusion in their “fact-check” than another expert who would take up my side.

My boycott of PolitiFact hasn’t succeeded in bringing about the desired behavior change. But if they keep this up, I don’t see how I can fail.

Under the new healthcare law, individuals can shop and purchase health insurance through government-created exchanges. If a state refuses to set up its own exchange, the law allows the federal government to set one up instead. Due to a glitch in the original statute, individuals are only eligible for a tax credit if they buy insurance through a state exchange, not a federal one. That allows states to disrupt the system by refusing to set up their own exchanges. To fix this technical problem, the Internal Revenue Service issued a new rule, making the tax credit available for people who purchase insurance on federal exchanges. Conservative watchdogs, including Michael Cannon of the Cato Institute, say the IRS overstepped its bounds and lacked the power to rewrite the law. While no lawsuit has been filed yet, “we’re watching the whole exchange issue now,” said Diane Cohen of the Goldwater Institute.

One addition and three corrections.

By spending that money illegally and issuing those illegal tax credits, the IRS is also triggering an illegal tax against employers (i.e., ObamaCare’s employer mandate).

It’s not a “glitch.” It is a deliberate design feature.

When the IRS lacks statutory authority to tax people or spend taxpayer dollars, but does both anyway, that lack of authority is not “technical problem.” It is called “taxation without representation.” And it is a very bad thing.